2 2013 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW, Washington, DC Telephone: ; Internet: Some rights reserved A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 Unported license (CC BY 3.0) commons.org/licenses/by/3.0. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution Please cite the work as follows: World Bank Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises. Washington, DC: World Bank Group. DOI: / License: Creative Commons Attribution CC BY 3.0 Translations If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: ; Additional copies of all 11 editions of Doing Business may be purchased at ISBN (paper): ISBN (electronic): DOI: / Cover design: The Word Express
3 Doing Business 2014 Understanding Regulations for Small and Medium-Size Enterprises Comparing Business Regulations for Domestic Firms in 189 Economies A World Bank Group Corporate Flagship
4 Resources on the Doing Business website Current features News on the Doing Business project Rankings How economies rank from 1 to 189 Data All the data for 189 economies topic rankings, indicator values, lists of regulatory procedures and details underlying indicators Reports Access to Doing Business reports as well as subnational and regional reports, reform case studies and customized economy and regional profiles Methodology The methodologies and research papers underlying Doing Business Research Abstracts of papers on Doing Business topics and related policy issues Doing Business reforms Short summaries of DB2014 business regulation reforms, lists of reforms since DB2008 and a ranking simulation tool Historical data Customized data sets since DB2004 Law library Online collection of business laws and regulations relating to business and gender issues Contributors More than 10,200 specialists in 189 economies who participate in Doing Business doing-business Entrepreneurship data Data on business density (number of newly registered companies per 1,000 working-age people) for 139 economies exploretopics/entrepreneurship Distance to frontier Data benchmarking 189 economies to the frontier in regulatory practice Information on good practices Showing where the many good practices identified by Doing Business have been adopted good-practice Doing Business iphone App Doing Business at a Glance presents the full report, rankings and highlights from each indicator for the iphone, ipad and ipod touch
5 Contents v Preface 1 Overview 20 About Doing Business: measuring for impact 30 Research on the effects of business regulations Doing Business 2014 is the 11th in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies from Afghanistan to Zimbabwe and over time. Regulations affecting 11 areas of the life of a business are covered: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and employing workers. The employing workers data are not included in this year s ranking on the ease of doing business. Data in Doing Business 2014 are current as of June 1, The indicators are used to analyze economic outcomes and identify what reforms of business regulation have worked, where and why. Case studies 41 Why are minimum capital requirements a concern for entrepreneurs? 46 What role should risk-based inspections play in construction? 52 Tackling high electricity connection costs: Trinidad and Tobago s new approach 56 Implementing electronic tax filing and payments in Malaysia 60 Implementing trade single windows in Singapore, Colombia and Azerbaijan 66 Improving court efficiency: the Republic of Korea s e-court experience Topic notes 72 Starting a business 77 Dealing with construction permits 82 Getting electricity 86 Registering property 90 Getting credit 96 Protecting investors 100 Paying taxes 105 Trading across borders 110 Enforcing contracts 114 Resolving insolvency 118 Annex: employing workers 123 References 130 Data notes 155 Ease of doing business and distance to frontier 159 Summaries of Doing Business reforms in 2012/ Country tables 237 Employing workers data 248 Acknowledgments
7 Preface A thriving private sector with new firms entering the market, creating jobs and developing innovative products contributes to a more prosperous society. Governments play a crucial role in supporting a dynamic ecosystem for firms. They set the rules that establish and clarify property rights, reduce the cost of resolving disputes and increase the predictability of economic transactions. Without good rules that are evenly enforced, entrepreneurs have a harder time starting and growing the small and medium-size firms that are the engines of growth and job creation for most economies around the world. Doing Business 2014 is the 11th in a series of annual reports benchmarking the regulations that affect private sector firms, in particular small and medium-size enterprises. The report presents quantitative indicators on 11 areas of business regulation for 189 economies. Four economies have been added this year Libya, Myanmar, San Marino and South Sudan. The data are current as of June The Doing Business project aims to deliver a body of knowledge that will catalyze reforms and help improve the quality of the rules underpinning the activities of the private sector. This matters because in a global economy characterized by constant change and transformation, it makes a difference whether the rules are sensible or excessively burdensome, whether they create perverse incentives or help establish a level playing field, whether they safeguard transparency and encourage adequate levels of competition. To have a tool that allows economies to track progress over time and with respect to each other in the development of the building blocks of a good business environment is crucial for the creation of a more prosperous world, with increased opportunities for everyone We have been excited to see a global convergence toward good practices in business regulations. The data show that economies in all regions of the world and of all income levels have made important strides in improving the quality of the rules underpinning private sector activity. This year the findings have been even more encouraging low-income economies have improved their business regulations at twice the rate that high-income economies have. These developments support the twin World Bank Group goals of ending extreme poverty and boosting shared prosperity. By providing useful insights into good practices worldwide in business regulations, Doing Business helps mobilize policy makers to reduce the cost and complexity of government procedures and to improve the quality of institutions. Such change serves the underprivileged the most where more firms enter the formal sector, entrepreneurs have a greater chance to grow their businesses and produce jobs, and workers are more likely to enjoy the benefit of regulations such as social protections and safety regulations. We encourage you to give feedback on the Doing Business website (http://www. doingbusiness.org) and join the conversation as we shape the project in the years to come to make it a more effective mechanism for better business regulation. Sincerely, Sri Mulyani Indrawati Managing Director World Bank Group V
9 Overview Regulation is a reality from the beginning of a firm s life to the end (figure 1.1). Navigating it can be complex and costly. On average around the world, starting a business takes 7 procedures, 25 days and costs 32% of income per capita in fees. But while it takes as little as 1 procedure, half a day and almost nothing in fees in New Zealand, an entrepreneur must wait 208 days in Suriname and 144 in República Bolivariana de Venezuela. And this is just the tip of the iceberg. Consider what the new firm must go through to complete other transactions at the average level of time and effort required around the world. Preparing, filing and paying the firm s annual taxes could take up another 268 hours of its staff s time. Exporting just one shipment of its final products could take 6 documents, 22 days and more than $1,500. If the firm needs a simple warehouse, getting the facility ready to start operating could take 26 procedures and 331 days more to buy the land, register its ownership, build the warehouse and get electricity and other utility connections. Having sorted out these initial formalities, if the firm becomes embroiled in a legal dispute with one of its suppliers or customers, resolving the dispute could mean being stuck in court for 622 days, with costs amounting to 35% of the value of the claim. To operate and expand, the firm will need financing from shareholders or from creditors. Raising money in the capital market is easier and less costly where minority shareholders feel protected from self-interested transactions by large shareholders. Good corporate governance rules can provide this kind of protection. But among the 189 economies covered by Doing Business, 46 still have only very limited requirements for disclosing majority shareholders conflicts of interest or none at all. This undermines trust in the system, making it less likely that investors will take a minority stake in a firm. Similarly, creditors need guarantees that their loans will be repaid. Information about potential borrowers and solid legal rights for creditors play an important part in providing those guarantees. Yet institutions providing these are not universal among the 189 economies: 35 have no credit bureau or registry that distributes information about borrowers, and 124 lack a modern collateral registry where a creditor can check whether a movable asset being pledged as collateral has any other liens on it. If despite all efforts the firm ends up insolvent, having institutions in place that enable creditors to recover their assets is also important. On average around the world, creditors recover no more than 35% of their initial loan in case of bankruptcy as measured by Doing Business. In many parts of the world in recent years, Doing Business data show that there has been remarkable progress in removing some of the biggest bureaucratic obstacles to private sector activity. Yet small and medium-size enterprises still are subject to burdensome regulations and vague rules that are unevenly applied and that impose inefficiencies on the enterprise sector. This curtails the overall competitiveness of economies and their potential for creating jobs. WHAT DOES DOING BUSINESS MEASURE AND WHO PERFORMS WELL? Through its indicators Doing Business measures and tracks changes in the In 2012/13, 114 economies implemented 238 regulatory reforms making it easier to do business 18% more reforms than in the previous year. If economies around the world followed the best practice in regulatory processes for starting a business, entrepreneurs would spend 45.4 million fewer days each year satisfying bureaucratic requirements. Ukraine, Rwanda, the Russian Federation, the Philippines and Kosovo are among the economies improving the most in 2012/13 in areas tracked by Doing Business. Reforms reducing the complexity and cost of regulatory processes continue to be the most common. Less than a third of the reforms recorded by Doing Business in 2012/13 and in the years since 2009 focused on strengthening legal institutions. Sub- Saharan Africa is home to 9 of the 20 economies narrowing the gap with the regulatory frontier the most since Low- income economies narrowed this gap twice as much as high- income economies did. Economies that improve in areas measured by Doing Business are on average more likely than others to also implement reforms in other areas such as governance, health, education and gender equality. Economies that perform well on Doing Business indicators do not necessarily have smaller governments.
10 2 DOING BUSINESS 2014 FIGURE 1.1 Regulations as measured by Doing Business affect firms throughout their life cycle When things go wrong At start-up In daily operations In getting financing In getting a location D economies that have no regulations in the area being measured or do not apply their regulations (considered no practice economies), penalizing them for lacking appropriate regulation. The economies ranking highest on the ease of doing business therefore are not those with no regulation but those whose governments have managed to create a regulatory system that facilitates interactions in the marketplace and protects important public interests without unnecessarily hindering the development of the private sector in other words, a regulatory system with strong institutions and low transactions costs (table 1.1). These economies all have both a well-developed private sector and a reasonably efficient regulatory system that has managed to strike a sensible balance between the protections that good rules provide and the need to have a dynamic private sector unhindered by excessively burdensome regulations. regulations applying to domestic small and medium-size companies, operating in the largest business city of each economy, in 10 areas in their life cycle: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The aggregate ranking on the ease of doing business is based on these indicators. Doing Business also documents regulations on employing workers, which are not included in the aggregate ranking. In addition, Doing Business tracks good practices around the world to provide insights into how governments have improved the regulatory environment in the past in the areas that it measures (see table 1.5 at the end of this overview). Regulations that protect consumers, shareholders and the public without overburdening firms help create an environment where the private sector can thrive. Sound business regulation requires both efficient procedures and strong institutions that establish transparent and enforceable rules. Doing Business measures both these elements: through indicators relating to the strength of legal institutions relevant to business regulation and through indicators relating to the complexity and cost of regulatory processes. The indicators in the first group measure the strength of the legal and regulatory framework for getting credit, protecting investors, enforcing contracts and resolving insolvency. Those in the second group measure the cost and efficiency of regulatory processes for starting a business, dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. Based on time-and-motion case studies from the perspective of the business, these indicators measure the procedures, time and cost required to complete a transaction in accordance with the relevant regulations (for a detailed explanation of the Doing Business methodology, see the data notes and the chapter About Doing Business ). Doing Business is not about less regulation but about better regulation. Accordingly, some Doing Business indicators give a higher score for better and more developed regulation, as the protecting investors indicators do for stricter disclosure requirements for related-party transactions. Other indicators, such as those on dealing with construction permits, automatically assign the lowest score to WHERE IS THE REGULATORY GAP WIDER? To complement the ease of doing business ranking, a relative measure, Doing Business 2012 introduced the distance to frontier, an absolute measure of business regulatory efficiency. This measure aids in assessing how much the regulatory environment for local entrepreneurs improves in absolute terms over time by showing the distance of each economy to the frontier, which represents the best performance by any economy observed on each of the Doing Business indicators since 2003 or the year in which data for the indicator were first collected. Because the distance to frontier is an absolute measure, it can be used for comparisons over time. The measure is normalized to range between 0 and 100, with 100 representing the frontier. A higher score indicates a more efficient business environment and stronger legal institutions (for a detailed description of the methodology, see the chapter on the ease of doing business and distance to frontier). Analysis based on the distance to frontier measure shows that on average across all regions, economies are closest
11 OVERVIEW 3 TABLE 1.1 Rankings on the ease of doing business DB2014 DB2014 DB2014 Rank Economy reforms Rank Economy reforms Rank Economy reforms 1 Singapore 2 64 St. Lucia Honduras 0 2 Hong Kong SAR, China 1 65 Italy Egypt, Arab Rep. 0 3 New Zealand 1 66 Trinidad and Tobago Kenya 0 4 United States 0 67 Ghana Bangladesh 1 5 Denmark 0 68 Kyrgyz Republic Bosnia and Herzegovina 0 6 Malaysia 3 69 Turkey Uganda 1 7 Korea, Rep Azerbaijan Yemen, Rep. 0 8 Georgia 1 71 Antigua and Barbuda India 0 9 Norway 0 72 Greece Ecuador 1 10 United Kingdom 2 73 Romania Lesotho 1 11 Australia 1 74 Vanuatu Cambodia 0 12 Finland 0 75 Czech Republic West Bank and Gaza 1 13 Iceland 1 76 Mongolia Mozambique 2 14 Sweden 1 77 Dominica Burundi 6 15 Ireland 0 78 Moldova Bhutan 2 16 Taiwan, China 0 79 Guatemala Sierra Leone 0 17 Lithuania 2 80 Seychelles Tajikistan 2 18 Thailand 1 81 San Marino Liberia 2 19 Canada 0 82 St. Vincent and the Grenadines Tanzania 2 20 Mauritius 3 83 Zambia Uzbekistan 6 21 Germany 0 84 Bahamas, The Nigeria 0 22 Estonia 1 85 Sri Lanka Madagascar 2 23 United Arab Emirates 3 86 Kosovo Sudan 0 24 Latvia 4 87 Morocco Gambia, The 1 25 Macedonia, FYR 6 88 Uruguay Iraq 0 26 Saudi Arabia 0 89 Croatia Iran, Islamic Rep Japan 0 90 Albania Algeria 0 28 Netherlands 2 91 Barbados Burkina Faso 1 29 Switzerland 0 92 Russian Federation Mali 0 30 Austria 0 93 Serbia Micronesia, Fed. Sts Portugal 1 94 Jamaica Togo 3 32 Rwanda 8 95 Maldives Comoros 1 33 Slovenia 1 96 China Lao PDR 1 34 Chile 1 97 Solomon Islands Djibouti 3 35 Israel 2 98 Namibia Suriname 2 36 Belgium 0 99 Vietnam Bolivia 0 37 Armenia Palau Gabon 3 38 France St. Kitts and Nevis Afghanistan 2 39 Cyprus Costa Rica Syrian Arab Republic 0 40 Puerto Rico (U.S.) Malta Equatorial Guinea 0 41 South Africa Kuwait Côte d'ivoire 4 42 Peru Nepal Cameroon 0 43 Colombia Belize São Tomé and Príncipe 0 44 Montenegro Grenada Zimbabwe 0 45 Poland Philippines Malawi 1 46 Bahrain Paraguay Timor-Leste 0 47 Oman Pakistan Mauritania 1 48 Qatar Lebanon Benin 2 49 Slovak Republic Ukraine Guinea 3 50 Kazakhstan Papua New Guinea Niger 2 51 Tunisia Marshall Islands Haiti 0 52 Spain Guyana Senegal 1 53 Mexico Brazil Angola 0 54 Hungary Dominican Republic Guinea-Bissau 1 55 Panama El Salvador Venezuela, RB 1 56 Botswana Jordan Myanmar 1 57 Tonga Indonesia Congo, Dem. Rep Bulgaria Cape Verde Eritrea 0 59 Brunei Darussalam Kiribati Congo, Rep Luxembourg Swaziland South Sudan 0 61 Samoa Nicaragua Libya 0 62 Fiji Ethiopia Central African Republic 1 63 Belarus Argentina Chad 1 Note: The rankings for all economies are benchmarked to June 2013 and reported in the country tables. This year s rankings on the ease of doing business are the average of the economy s percentile rankings on the 10 topics included in this year s aggregate ranking. The number of reforms excludes those making it more difficult to do business. Source: Doing Business database.
12 4 DOING BUSINESS 2014 to the frontier or best practice in the area of starting a business. And they are furthest from the frontier on average in resolving insolvency. Starting a business is also the area where all regions are closest together, in line with the evidence on convergence presented later in the overview. Performance in such areas as getting credit, enforcing contracts and resolving insolvency varies considerably across regions. Across most areas measured by Doing Business, OECD high-income economies are closer to the frontier on average than those of any other region (figure 1.2). The exceptions are starting a business and registering property, where Europe and Central Asia is slightly ahead. Sub-Saharan African economies are furthest from the frontier on average in 6 of the 10 areas measured by Doing Business: starting a business, getting electricity, paying taxes, trading across borders, protecting investors and resolving insolvency FIGURE 1.2 OECD high-income economies are closest to the frontier in regulatory practice Average distance to frontier (percentage points) Starting a business Dealing with construction permits Getting electricity Registering property OECD high income Middle East & North Africa Sub-Saharan Africa Source: Doing Business database. Paying taxes Trading across borders Getting credit Europe & Central Asia East Asia & Pacific Enforcing contracts Regulatory frontier Protecting investors South Asia Resolving insolvency Latin America & Caribbean Regional performance varies considerably across the areas measured by Doing Business. In several areas Europe and Central Asia has an average performance similar to that of OECD high-income economies. But in dealing with construction permits this region is further from the regulatory frontier than any other. East Asia and the Pacific follows Europe and Central Asia closely in some areas but outperforms that region in dealing with construction permits, getting electricity, paying taxes and trading across borders. Latin America and the Caribbean has a performance remarkably similar to that of East Asia and the Pacific except in paying taxes. The Middle East and North Africa has a very diverse performance. In some areas, such as paying taxes, it is almost as close to the frontier as OECD high-income economies. In other areas, such as getting credit, the Middle East and North Africa has the lowest performance among regions. South Asia has a gap with the frontier similar to that of Sub-Saharan Africa in most areas, though it substantially outperforms that region in 3 areas starting a business, resolving insolvency and getting credit. The distance to frontier measure provides one perspective on variation in performance across areas of regulation measured by Doing Business. Rankings of economies in these areas provide another. The ease of doing business ranking is just one number aggregating an average of more than 300 data points for each economy. Not surprisingly, the full set of rankings and data across Doing Business topics for an economy can present a very different picture than the aggregate ranking (figure 1.3). Take Estonia, which stands at 22 in the ease of doing business ranking. Its rankings on individual topics range from 7 in trading across borders to 68 in protecting investors. Japan s lowest 3 rankings (in paying taxes, starting a business and dealing with construction permits) average 117, while its highest 3 (in resolving insolvency, protecting investors and trading across borders) average 13. Japan s ranking on the overall ease of doing business is 27. Three economies added to the Doing Business sample this year Libya, Myanmar and South Sudan show similar variation across topics (box 1.1). This variation can point to important regulatory obstacles for firms. An economy may make it easy to start a business, for example. But if getting financing is difficult, the constraints will hamper the growth of new firms, discouraging entrepreneurship. WHAT IS THE BIGGER PICTURE? Doing Business recognizes that the state plays a fundamental role in private sector development. Governments support economic activity by establishing and enforcing rules that clarify property rights and reduce the cost of resolving disputes, that increase the predictability of economic interactions and that provide contractual partners with core protections against abuse. So it is no surprise to find that there is no evidence suggesting that economies that do well on Doing Business indicators tend to have governments driven by a smaller government philosophy. Indeed, the data suggest otherwise. It is generally the bigger governments (as measured by government consumption expenditure as a percentage of GDP), not the small ones, that tend to provide more of the protections and efficient rules promoted by Doing Business. Economies performing well on Doing Business indicators include examples with large governments as well as those
13 OVERVIEW 5 FIGURE 1.3 An economy s regulatory environment may be more business-friendly in some areas than in others Average ranking Average of lowest 3 topic rankings Average of all topic rankings Average of highest 3 topic rankings Singapore Hong Kong SAR, China United States Korea, Rep. Georgia Finland Iceland Taiwan, China Ireland Estonia Mauritius Germany Portugal Switzerland Saudi Arabia Austria Rwanda France Belgium Qatar Bahrain Armenia Israel Spain Poland Puerto Rico (U.S.) Slovak Republic Hungary Luxembourg Mexico St. Lucia Greece Bulgaria St. Vincent and the Grenadines Kyrgyz Republic Italy Ghana Vanuatu Guatemala Bahamas, The Morocco Zambia San Marino Barbados Kosovo Solomon Islands St. Kitts and Nevis Vietnam Maldives Namibia Costa Rica Grenada Albania Belize Ukraine Lebanon Guyana Cape Verde Papua New Guinea Kiribati Indonesia El Salvador Ecuador Bhutan Argentina Bangladesh Honduras Lesotho Kenya Uzbekistan India Tanzania Mozambique Gambia, The Micronesia, Fed. Sts. Sudan Nigeria Comoros Iran, Islamic Rep. Equatorial Guinea Syrian Arab Republic Afghanistan Djibouti Bolivia Cameroon Zimbabwe Mauritania Haiti Angola Guinea Guinea-Bissau Myanmar Libya Congo, Rep. Central African Republic Note: Rankings reflected are those on the 10 Doing Business topics included in this year s aggregate ranking on the ease of doing business. Figure is illustrative only; it does not include all 189 economies covered by this year s report. See the country tables for rankings on the ease of doing business and each Doing Business topic for all economies. Source: Doing Business database. with small ones. Denmark, with among the largest governments in the world, is number 5 in the ease of doing business ranking; the Netherlands, also with one of the largest governments, is number 28. Hong Kong SAR, China, with a relatively small government, is number 2 in the ranking. Economies performing poorly on Doing Business indicators also include examples with large and small governments. Zimbabwe, with a large government relative to GDP, ranks at 170; Equatorial Guinea, with a small government, ranks at 166. Nevertheless, on average economies with smaller governments do not perform better on Doing Business indicators than those with larger governments (figure 1.4). Moreover, economies performing well on Doing Business indicators are on average more inclusive along at least 2 dimensions. They tend to have smaller informal sectors, meaning that more people have access to the formal market and can benefit from such regulations as social protections and workplace safety regulations (figure 1.5). And they are more likely to have gender equality under the law as measured by the World Bank Group s Women, Business and the Law indicators. 1 These 2 aspects of inclusiveness reflect in part a desire by governments to more effectively allocate resources. This means not hampering the productivity of formal businesses through overly burdensome rules. And it means not needlessly depriving the economy of the skills and contributions of women. Overall, economies with smarter business regulations are more likely to nurture an environment conducive to greater economic inclusion. No set of indicators can possibly capture the full complexity of a particular reality in the case of the Doing Business indicators, that faced by entrepreneurs as they go about their activities while attempting to comply with the rules established by government. Having a state-of-the-art business registry has less impact on job creation or private sector investment in an economy if roads are lacking, crime is FIGURE 1.4 Good performance on Doing Business indicators is not associated with smaller governments Distance to frontier (percentage points), General government final consumption expenditure as % of GDP, 2012 Note: The correlation between the distance to frontier and government expenditure is 0.20 and significantly different from zero. Source: Doing Business database; World Bank, World Development Indicators database.
14 6 DOING BUSINESS 2014 BOX 1.1 The right time to improve business regulations For the first time, this year s report measures business regulations in Libya, Myanmar and South Sudan, economies that emerged from conflict or are starting to open up to the global economy after years of isolation. This is the right time to improve business regulations. Old laws and regulations still apply in Myanmar, including the Companies Act of 1914, the Code of Civil Procedure of 1908 and the Evidence Act, In Libya the civil code and the civil and commercial procedure codes all date back to In South Sudan the challenge is not updating old laws and regulations but creating new ones from scratch. This process takes time. Yet since independence in 2011, South Sudan has passed a company law, tax law and insolvency law. Doing Business provides baseline data that can help inform policy makers designing laws and their implementation. Data in this year s report show that these 3 economies rank among the bottom 10 on the ease of doing business. Although their performance varies somewhat across Doing Business topics, the data consistently show that these economies have complex and costly regulatory procedures and weak institutions relevant to business regulation (see figure). But in all 3 economies new laws are under discussion that may affect future editions of the Doing Business data. Doing Business will continue to measure and monitor potential improvements. There are many areas for regulatory improvement in fragile and conflict-affected states Global ranking, by Doing Business topic Starting a business 189 Resolving Dealing with insolvency construction permits 150 Enforcing Getting 68 contracts electricity Libya Trading across 93 Registering borders 64 property Paying taxes Getting credit 186 Protecting investors 187 South Sudan 189 Starting a Resolving business Dealing with insolvency 140 construction 171 permits Enforcing Getting 184 contracts 123 electricity Trading across Registering borders property Paying taxes Getting credit 92 Protecting investors Libya Middle East & North Africa South Sudan Sub-Saharan Africa 189 Starting a business 155 Resolving insolvency 150 Dealing with construction 100 permits Enforcing Getting electricity contracts Trading across Registering borders property Paying taxes Protecting investors Getting credit 120 Starting a business Resolving 135 Dealing with 189 insolvency 112 construction 105 permits Enforcing contracts 108 Getting electricity Trading across Registering borders 133 property Getting credit Paying taxes Protecting investors 115 Myanmar Myanmar East Asia & Pacific Syrian Arab Republic Syrian Arab Republic Middle East & North Africa Note: Numbers are economy and regional average rankings, with 1 denoting the highest ranking on a topic and 189 the lowest. Source: Doing Business database. In economies affected by conflict, reforming business regulations is almost always a difficult task even as firms often face increasing challenges in the business regulatory environment. Civil strife, a substantial weakening in the state s ability to enforce the law and other characteristics of conflict-affected states often bring about a substantial worsening of the conditions in which the private sector operates. The Syrian Arab Republic was the economy that showed the greatest deterioration in 2012/13 in the areas measured by Doing Business. The time and cost associated with trading across borders increased substantially, for example, and no building permits are being issued in Damascus, making it impossible to legally build new construction. Yet there is encouraging news from other fragile and conflict-affected states. A recently published report, Doing Business in the g , shows that all economies in the g7+ group have improved their business regulatory environment since 2005, narrowing the gap with the best performance observed globally by Doing Business. a Sierra Leone, Burundi, Guinea-Bissau, Timor-Leste, Côte d Ivoire, Togo and the Solomon Islands are all among the 50 economies making the biggest improvements between 2005 and a. A special report, Doing Business in the g compares business regulations in economies of the g7+ group: Afghanistan, Burundi, the Central African Republic, Chad, the Comoros, the Democratic Republic of Congo, Côte d Ivoire, Guinea, Guinea-Bissau, Haiti, Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. The g7+ group is a country-owned and country-led global mechanism established in April 2010 to monitor, report and draw attention to the unique challenges faced by fragile states.
15 OVERVIEW 7 FIGURE 1.5 Good performers on Doing Business indicators are likely to be more inclusive with a smaller informal sector and greater gender equality under the law Distance to frontier (percentage points), Distance to frontier (percentage points), Informal sector as % of GDP, Number of restrictions for women in the law, 2013 Note: The correlation between the distance to frontier and the size of the informal sector is The correlation between the distance to frontier and the number of restrictions for women in the law is Both relationships are significant at the 1% level after controlling for income per capita. The number of restrictions for women in the law refers to those measured by Women, Business and the Law, a data set capturing 47 legal restrictions on women s employment and entrepreneurship. Source: Doing Business database; Schneider, Buehn and Montenegro 2010; World Bank Group, Women, Business and the Law database. rampant and state capture or corruption is the norm. To understand the challenges faced by businesses, the Doing Business rankings and underlying data therefore need to be used in conjunction with other information. Of course, sound business regulations are not the only thing on which a thriving business environment depends. Other areas beyond the focus of Doing Business are also important including stable macroeconomic policy, a well-educated workforce and well-developed infrastructure, just to name a few. WHAT GAINS WERE ACHIEVED IN 2012/13? Reforming in any area of government policy is a challenge. Business regulation is no exception. Implementing regulatory changes often requires agreement among multiple agencies in a government. Consider a onestop shop for business registration. Creating one involves coordination across the business registry, the statistical office, the municipal tax office and the state tax office, to name just a few. But 96 economies have nevertheless done so. Governments undertake such reforms because reducing the complexity and cost of regulatory processes or strengthening legal institutions relevant to business regulation brings many benefits. Governments benefit from cost savings because the new systems often are easier to maintain (though setting up a new system involves an initial fixed cost). Firms benefit from more streamlined and less costly processes or more reliable institutions. And economies as a whole benefit from new firm start-ups, more jobs, growth in trade and greater overall economic dynamism (see the chapter on research on the effects of business regulations). In 2012/13 such efforts continued around the world: 114 economies implemented 238 regulatory reforms making it easier to do business, about 18% more reforms than in the previous year. This is the second highest number of reforms implemented in a year since the financial crisis of Inroads in reducing formalities The results of these reforms are tangible. They can be quantified by adding up all the regulatory procedures, payments and documents required for a small to mediumsize firm to complete a set of transactions such as to start a business, register property and so on in every economy covered by Doing Business. In 2012 such formalities would have come to a total of 21,272 and taken 248,745 days to complete (table 1.2). Thanks to the regulatory reforms undertaken in 2012/13, this regulatory maze now contains about 300 (1.3%) fewer formalities than in Compared with 2005, the first year in which data for 9 of the 10 Doing Business indicator sets were first collected, the number of formalities has fallen by about 2,400 (11%) and the time by about 40,000 days. These calculations are for a hypothetical case taking 1 firm through all procedures measured by Doing Business in every economy covered. But some economies are much larger than others, and in these economies the burden of poor regulation affects a larger number of firms. In the 107 economies covered by both Doing Business and the World Bank s Entrepreneurship Database, an estimated 3.1 million limited liability companies were newly registered in 2012 alone. 3 Assuming that they followed the rules and regulations for company incorporation in their home economy as measured by Doing Business, these 3.1 million firms together dealt with 18.7 million different procedures and spent 46.9 million days to get incorporated. But if all 107 economies followed best practice in regulatory processes for starting a business, these new firms would have had to spend only 1.5 million days dealing with the local bureaucracy, leaving them a greater share of their time and entrepreneurial energy to devote to their new business. In other words, because not all economies followed best practice, entrepreneurs spent an extra 45.4 million days satisfying bureaucratic requirements. Patterns across regions Patterns of regulatory reform vary across regions. In 2012/13 South Asia had the largest share of economies (75%) with
16 8 DOING BUSINESS 2014 TABLE 1.2 Total formalities, time and cost to complete one transaction in every economy Savings Starting a business Procedures (number) 1,393 1, Time (days) 5,590 4, Cost (US$) 203, ,648 2,117 Minimum capital (US$) 523, ,337 42,811 Dealing with construction permits Procedures (number) 2,865 2, Time (days) 33,532 31,951 1,581 Cost (US$) 2,773,595 2,570, ,344 Getting electricity Procedures (number) 1,010 1,002 8 Time (days) 20,651 20, Cost (US$) 5,640,846 5,506, ,583 Registering property Procedures (number) 1,105 1, Time (days) 10,082 9, Cost (US$) 5,476,360 5,543,489 67,129 Paying taxes regulatory reforms in at least 1 area measured by Doing Business. 4 Europe and Central Asia, continuing its steady pace of regulatory reform, had the second largest share (73%), closely followed by Sub-Saharan Africa (66%). In East Asia and the Pacific 60% of economies had at least 1 regulatory reform, while in Latin America and the Caribbean only 53% did. The Middle East and North Africa had the smallest share of economies implementing regulatory reforms in at least 1 area (40%), a development that is partly linked to the current political turmoil in the region. As in previous years, reforms aimed at reducing the complexity and cost of regulatory processes were more common around the world than those focused on strengthening legal institutions relevant to business regulation (figure 1.6). In South Asia, for example, 75% of economies implemented at least 1 reform reducing regulatory complexity and cost, while only 25% had at least 1 aimed at strengthening legal institutions. The pattern is similar across all other regions except East Asia and the Pacific. Payments (number per year) 5,141 5, Time (hours per year) 50,804 50, Trading across borders Documents to export (number) 1,174 1,175 1 Time to export (days) 4,171 4, Cost to export (US$ per container) 278, ,385 7,839 Documents to import (number) 1,372 1,369 3 Time to import (days) 4,702 4, Cost to import (US$ per container) 334, ,573 10,180 Enforcing contracts Procedures (number) 7,212 7,207 5 Time (days) 117, , Resolving insolvency Time (years) Total savings Total formalities (number) 21,272 21, Total time (days) 248, ,283 5,462 Total cost (US$) 15,230,653 14,932, ,707 Source: Doing Business database. WHO IMPROVED THE MOST IN 2012/13? In 2012/13, 29 economies implemented in net 3 or more reforms improving their business regulatory systems or related institutions as measured by Doing Business. These 29 include economies from all income groups: high income (5), upper middle income (9), lower middle income (12) and low income (3). And they include economies from all regions. Among the 29 economies, 10 stand out as having narrowed the distance to frontier the most: Ukraine, Rwanda, the Russian Federation, the Philippines, Kosovo, Djibouti, Côte d Ivoire, Burundi, the former Yugoslav Republic of Macedonia and Guatemala (table 1.3). Five of these Burundi, Guatemala, FYR Macedonia, Rwanda and Ukraine have placed among the economies improving the most in previous years. Together, 10 economies implemented 49 reforms making it easier to do business in 2012/13. Of these reforms, 38 were aimed at reducing the complexity and cost of regulatory processes and 11 at strengthening legal institutions.
17 OVERVIEW 9 Ukraine was the top improver in 2012/13, implementing reforms in 8 of the 10 areas measured by Doing Business. Ukraine made starting a business easier by eliminating a separate procedure for registration with the statistical office and abolishing the fee for value added tax registration. It made dealing with construction permits easier by instituting a riskbased approval system that streamlined procedures for simpler buildings with fewer risk factors. And an amendment to the property rights law simplifying the process for registering ownership rights to real estate made both dealing with construction permits and registering property easier. In addition, Ukraine s private credit bureau (IBCH) began collecting data on firms from banks, expanding the information available to creditors and debtors. The introduction of simpler forms for value added tax and the unified social contribution reduced the time required for tax compliance. The implementation of the new customs code reduced the time to FIGURE 1.6 Reforms reducing regulatory complexity and cost continued to be more common in 2012/13 Share of economies with at least 1 Doing Business reform (%) South Asia 69 Reforms to reduce complexity and cost of regulatory processes Reforms to strengthen legal institutions export and import. And an amendment to the bankruptcy law made resolving insolvency easier. 46 Europe & Central Asia Sub-Saharan Africa Latin America & Caribbean OECD high income East Asia & Pacific Dealing with construction permits was the most common area of regulatory reform among the top improvers. Nine 20 Middle East & North Africa Note: Reforms to reduce the complexity and cost of regulatory processes are those in the areas of starting a business, dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. Reforms to strengthen legal institutions are those in the areas of getting credit, protecting investors, enforcing contracts and resolving insolvency. Source: Doing Business database. TABLE 1.3 The 10 economies improving the most across 3 or more areas measured by Doing Business in 2012/13 Reforms making it easier to do business Ease of doing business rank Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Resolving insolvency 1 Ukraine Rwanda 32 3 Russian Federation 92 4 Philippines Kosovo 86 6 Djibouti Côte d Ivoire Burundi Macedonia, FYR Guatemala 79 Note: Economies are selected on the basis of the number of their reforms and ranked on how much they improved in the distance to frontier measure. First, Doing Business selects the economies that implemented reforms making it easier to do business in 3 or more of the 10 topics included in this year s aggregate ranking. Regulatory reforms making it more difficult to do business are subtracted from the number of those making it easier. Second, Doing Business ranks these economies on the improvement in their distance to frontier score from the previous year. The improvement in their score is calculated not by using the data published in 2012 but by using comparable data that capture data revisions. The choice of the most improved economies is determined by the largest improvements in the distance to frontier score among those with at least 3 reforms. Source: Doing Business database.
18 10 DOING BUSINESS 2014 FIGURE 1.7 How far have economies moved toward the frontier in regulatory practice since 2009? Distance to frontier (percentage points) Regulatory frontier Singapore Hong Kong SAR, China New Zealand Denmark United States Korea, Rep. United Kingdom Ireland Norway Sweden Malaysia Iceland Finland Georgia Australia Germany Canada Japan Taiwan, China Austria Netherlands Thailand Lithuania Latvia Portugal Switzerland Estonia United Arab Emirates Mauritius Belgium Macedonia, FYR Israel Saudi Arabia Puerto Rico (U.S.) France Poland Spain Slovenia Rwanda Montenegro South Africa Mexico Peru Chile Colombia Bahrain Qatar Slovak Republic Tunisia Bulgaria Cyprus Armenia Oman Ghana Italy Botswana Guatemala Turkey Fiji Panama Luxembourg Tonga Czech Republic Vanuatu Hungary Samoa St. Lucia Belarus Bahamas, The Romania Kosovo Jamaica Croatia Morocco Zambia Moldova Antigua and Barbuda Dominica Belize Trinidad and Tobago St. Vincent and the Grenadines Uruguay Kazakhstan Maldives Seychelles Greece Namibia Brunei Darussalam Note: The distance to frontier measure shows how far on average an economy is at a point in time from the best performance achieved by any economy on each Doing Business indicator since 2003 or the first year in which data for the indicator were collected. The measure is normalized to range between 0 and 100, with 100 representing the frontier. The data refer to the 183 economies included in Doing Business 2010 (2009). Six economies were added in subsequent years. The vertical bars show the change in the distance to frontier from 2009 to The 20 economies improving the most are highlighted in red. Source: Doing Business database. of the 10 made changes in this area. Improvements in construction permitting often show results only after a long lag following the approval of new laws or systems. In Russia it took more than a decade for the national urban planning code of 1997 to be implemented in Moscow. The mayor finally adopted the code in April 2011, replacing multiple ad hoc regulations. But builders in Moscow are only now experiencing the positive effects of its implementation. In Guatemala City the municipality expanded the onestop shop for construction permitting to include the water company, EMPAGUA, in Property registration was another common focus, with 7 of the top improvers implementing changes in this area. The Rwanda Natural Resources Authority implemented a systematic land registration program, and now 90% of properties in the country are registered. In March 2013 Burundi established a one- stop shop for property transfers. Guatemala, FYR Macedonia, the Philippines, Rwanda and Ukraine simplified the process of paying taxes for firms. Expanding or introducing online filing and payment systems and simplifying tax forms were the most common features of the reforms in these economies. Other top improvers enhanced insolvency legislation, strengthened the legal rights of creditors or increased the scope of credit information available. The Philippines improved credit information sharing by guaranteeing borrowers right to access their data in the country s largest credit bureau. In FYR Macedonia new amendments to the Law on Contractual Pledge, adopted in June 2012, allow more flexibility in the design of debt agreements using movable collateral. And in Djibouti a new commercial code that replaced the one from 1986 strengthened the legal rights of creditors and improved the insolvency framework. Improvements to the import and export process were also common. Russia introduced a new data interchange system in 2009 enabling traders to submit customs declarations and supporting documents electronically. The number of users has since grown, and it is now the most popular method of submitting customs declarations. Rwanda implemented an electronic single-window system in January 2013 at the Rusumo border post with Tanzania, the post used to access the port of Dar es Salaam. Connected to such institutions as the Rwanda Bureau of Standards and the Rwanda Development Board, the system allows traders to receive verifications and approvals electronically. Four economies among the 10 top improvers reduced the complexity and cost of getting an electricity connection. Russia made obtaining a connection simpler and less costly by streamlining procedures and setting standard connection tariffs. Only 2 of the 10 top improvers strengthened the protections of minority investors Rwanda and FYR Macedonia. And only 1 made enforcing contracts easier Côte d Ivoire, by introducing a specialized commercial court. WHO IMPROVED THE MOST IN THE PAST 5 YEARS? Many of the top improvers in 2012/13 have been actively reforming business regulations for several years. This year s report presents the global trends since That year was chosen for 2 main reasons. First, starting with 2009 provides 5 annual data points, allowing analysis of medium-term improvements. And second, it means that the distance to frontier measure can be used to analyze the improvement across all 10 topics now included in the ease of doing business ranking, since 2009 was the first
19 OVERVIEW Serbia Russian Federation Costa Rica Kyrgyz Republic Sri Lanka Lebanon Azerbaijan China Solomon Islands Mongolia Nepal Vietnam Paraguay Dominican Republic Kuwait Grenada St. Kitts and Nevis Philippines Palau Jordan Swaziland Albania Papua New Guinea El Salvador Kenya Cape Verde Nicaragua Ukraine Honduras Guyana Pakistan Indonesia Bosnia and Herzegovina Ethiopia Ecuador Kiribati Lesotho Tanzania Yemen, Rep. Egypt, Arab Rep. Marshall Islands Argentina Bhutan Mozambique West Bank and Gaza Iran, Islamic Rep. Uganda Brazil India Sudan Algeria Mali Gabon Sierra Leone Bangladesh Liberia Cambodia Gambia, The Iraq Cameroon Côte d Ivoire Madagascar Lao PDR Togo Bolivia São Tomé and Príncipe Comoros Equatorial Guinea Burkina Faso Burundi Uzbekistan Tajikistan Suriname Nigeria Benin Malawi Senegal Micronesia, Fed. Sts. Djibouti Guinea-Bissau Syrian Arab Republic Angola Timor-Leste Guinea Niger Mauritania Haiti Afghanistan Zimbabwe Venezuela, RB Congo, Rep. Congo, Dem. Rep. Eritrea Central African Republic Chad year in which data were collected for the getting electricity indicators. Regulations have become more businessfriendly over time, but for a large number of economies there is ample room for more improvement. On average since 2009, the 183 economies included in the analysis have narrowed the gap with the regulatory frontier by 3.1 percentage points (figure 1.7). In 2009 these economies were 41.3 percentage points from the frontier on average, with the closest economy 9.3 percentage points away and the furthest one 72.3 percentage points away. Now these 183 economies are 38.1 percentage points from the frontier on average, with the closest economy 7.8 percentage points away and the furthest economy 68.8 percentage points away. Two-thirds of the reforms recorded by Doing Business in the past 5 years focused on reducing the complexity and cost of regulatory processes; the remaining third sought to strengthen the institutional framework for business regulation. Among the 183 economies, only 7 implemented no changes in any of the areas measured by Doing Business Antigua and Barbuda, Bolivia, Eritrea, Iraq, Kiribati, the Federated States of Micronesia and the United States. Except for the United States, these are economies that typically rank low on the ease of doing business. In some economies the absence of regulatory reforms may reflect a turbulent political and institutional environment, which sharply limits the government s ability to focus on creating a more business- friendly regulatory environment. Civil conflicts, widespread poverty and serious constraints in administrative capacity may make it difficult, for example, to strengthen creditors rights, create a more efficient judicial system or expand the range of protections afforded to minority shareholders. In other economies, however, the issue is not capacity or resource constraints but the policy choices the authorities have made, often biased against the private sector. In these economies the distance to frontier measure reveals a significant worsening in the quality of the business regulatory environment over the past several years, with small and medium-size enterprises facing a growing number of cumbersome restrictions and distortions. Improvement across regions and income groups Since 2009 all regions of the world and economies at all income levels have improved their business regulations on average. Moreover, improvement is happening where it is most needed. The regions where regulatory processes are longer and costlier and regulatory institutions are weaker are also those where the biggest improvements have occurred. Over the past 5 years Sub-Saharan Africa reduced the gap with the regulatory frontier by 3 times as much as OECD highincome economies did (figure 1.8). And low-income economies improved their average distance to frontier score at twice the rate that high-income economies did (figure 1.9). Part of the explanation is that high-income economies were much closer to the frontier to start with and therefore had less room to improve. But lowincome economies have nevertheless made an important effort to improve business regulations since Business regulatory reform is particularly relevant in low-income economies. Information presented in this year s report shows the link between better business regulations and economic growth (see the chapter on research on the effects of business regulations). Moreover, recent research shows that economic growth remains the most important factor in determining the pace of income growth for poor people. 5 Together, this evidence indicates that having sensible business regulations contributes to reducing poverty
20 12 DOING BUSINESS 2014 FIGURE 1.8 All regions are improving in the areas measured by Doing Business Average distance to frontier (percentage points) Regulatory frontier 70 Gap between OECD high-income economies and rest of the world ECA EAP 60 MENA LAC SAS and boosting shared prosperity, the twin goals of the World Bank Group. Across regions, starting a business emerges as the area with the largest share of reforms since Among OECD high-income economies resolving insolvency and paying taxes are the areas with the highest shares of reformers. A similar OECD Note: The distance to frontier measure shows how far on average an economy is at a point in time from the best performance achieved by any economy on each Doing Business indicator since 2003 or the first year in which data for the indicator were collected. The measure is normalized to range between 0 and 100, with 100 representing the frontier. The data refer to the 183 economies included in Doing Business 2010 (2009) and to the regional classifications for Six economies were added in subsequent years. EAP = East Asia and the Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MENA = Middle East and North Africa; OECD = OECD high income; SAS = South Asia; SSA = Sub-Saharan Africa. Source: Doing Business database. SSA pattern can be seen in Europe and Central Asia, where 73% of economies reformed in resolving insolvency and 85% in paying taxes. These reform choices partly reflect the response to the global financial crisis, which created a pressing need to streamline insolvency processes and lighten the burden of tax administration on the enterprise sector. FIGURE 1.9 Low-income economies have narrowed the gap with the regulatory frontier the most since 2009 High income Upper middle income Lower middle income Low income Average improvement in distance to frontier (percentage points), Note: The distance to frontier measure shows how far on average an economy is at a point in time from the best performance achieved by any economy on each Doing Business indicator since 2003 or the first year in which data for the indicator were collected. The measure is normalized to range between 0 and 100, with 100 representing the frontier. The data refer to the 183 economies included in Doing Business 2010 (2009) and to the income group classifications for Six economies were added in subsequent years. Source: Doing Business database. Beyond starting a business, different regions focused their regulatory reform efforts on different areas. In Sub-Saharan Africa the second greatest area of focus since 2009 has been trading across borders, while in South Asia economies were more likely to focus on registering property. In East Asia and the Pacific and Latin America and the Caribbean the focus was on paying taxes, and in the Middle East and North Africa on getting credit. Although starting a business has been the most common area of regulatory reform, it is not the area with the biggest improvements at the regional level since 2009 mainly because the starting point in 2009 was already closer to the regulatory frontier than it was in other areas. OECD high-income economies narrowed the gap with the frontier the most in resolving insolvency, Europe and Central Asia in paying taxes, South Asia in registering property, and the Middle East and North Africa, East Asia and the Pacific and Sub-Saharan Africa in getting credit. The 20 economies narrowing the gap the most Of the 20 economies narrowing the gap with the regulatory frontier the most since 2009, 9 are in Sub-Saharan Africa, 8 are in Europe and Central Asia, 2 are in East Asia and the Pacific, and 1 is an OECD high-income economy (figure 1.7). None are in the Middle East and North Africa or Latin America and the Caribbean, the regions that consistently have smaller numbers of reformers. Among the 20 economies are both small and large economies as well as economies at all income levels, though there is a higher incidence of low- and lower-middle-income economies. Together over the past 5 years, these 20 economies implemented 253 regulatory reforms making it easier to do business, about 20% of the global total for the period. Two of them Ukraine and Rwanda implemented at least 1 regulatory reform in every area measured by Doing Business. In line with the global trend, starting a business was the most common area of regulatory reform among the 20 economies, followed by paying taxes. The 20 economies narrowing the regulatory gap the most are dynamic in other